<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 27, 1998
LEXINGTON CORPORATE PROPERTIES TRUST
(Exact Name of Registrant as specified in its charter)
Maryland 1-12386 13-3717318
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
355 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 692-7260
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisitions or Disposition of Assets.
Lexington Corporate Properties Trust (the "Company") has acquired 12 properties
("Property Acquisitions") in 1998 comprising approximately 3.6 million square
feet of gross leasable area in 9 states. The total acquisition price for these
Property Acquisitions is approximately $199.0 million.
The Company's previous report on Form 8-K, dated March 27, 1998, provided
specific information related to 8 properties that were acquired by the Company
during 1998. These properties were acquired for approximately $91.2 million, of
which $58.1 was satisfied through borrowings, $4 million through the issuance of
Operating Partnership Units and the remainder in cash. Consequently, this report
has been filed for the purpose of providing certain historical financial
information relating to one additional property the Company acquired and pro
forma financial information for the Property Acquisitions. Specific information
with respect to the four additional Property Acquisitions is as follows:
On June 19, 1998, the Company acquired a 432,000 square foot distribution
facility in Lancaster, California (the "Lancaster Property") for approximately
$15 million, of which approximately $1.8 million was in the form of Operating
Partnership Units. The Lancaster Property was recently developed and is net
leased to Michaels Stores Inc. for 15 years with an average annual net rent of
$1.43 million.
On July 2, 1998, the Company acquired a 179,300 square foot office building in
Florence, South Carolina (the "Florence Property") for approximately $15
million. The Florence Property was the Company's first build-to-suit project and
is net leased to Fleet Mortgage Group for 10 years with an average annual net
rent of approximately $1.65 million.
On July 24, 1998, the Company acquired a 184,000 square foot manufacturing and
distribution facility in Auburn Hills, Michigan (the "Auburn Hills Property")
for approximately $13.8 million. The Auburn Hills Property is another
build-to-suit project and is net leased to GM Inland Seat for 8 years with an
average annual net rent of approximately $1.4 million.
Effective August 27, 1998, the Company completed an agreement with the general
partners and a majority of the limited partners of an affiliated partnership to
acquire a 1.7 million square foot distribution facility in Warren, Ohio (the
"Warren Property") for approximately $63.9 million of which approximately $18.85
million is in the form of Operating Partnership Units, approximately $42.2
million in assumed mortgage debt and approximately $2.85 million in cash. Two of
the general partners are the Co-Chief Executive Officers of the Company. As part
of this transaction they received approximately $6 million in Operating
Partnership Units in exchange for their partnership interests, management
contract and a beneficial interest in a deferred installment obligation. The
mortgage debt matures in September 2007, and provides for semi-annual principal
and interest payments of $3,080,000. The Warren Property is leased to and
occupied by K-Mart Corporation under a net lease which expires on September 30,
2007. The average annual net rent under the K-Mart Corporation lease is $8.9
million. As part of the transaction the Company purchased an existing primary
lease encumbering the Property.
The Company partially funded the purchases of the Lancaster Property, the
Florence Property and the Auburn Hills Property through aggregate draws on
short-term credit facilities of approximately $42.0 million. These borrowings
bear interest at 137.5 basis points over LIBOR which approximates 7.0% per
annum.
<PAGE> 3
The annualized Funds From Operations ("FFO") generated by the Property
Acquisitions equates to an aggregate annualized yield of approximately 11.1% on
the Company's total unleveraged investment in such properties.
Item 7. Financial Statements, Pro Forma Information and Exhibits.
[a] [b] Financial Statements and Pro Forma Financial Information
The financial statements and pro forma financial information
filed herewith is as follows:
Independent Auditors' Report.
Historical Summary of Revenue and Certain Operating Expenses
for the Years Ended December 31, 1997, 1996 and 1995 of the
Warren Property.
Notes to Historical Summary of Revenue and Certain Operating
Expenses for the Years Ended December 31, 1997, 1996 and 1995
of the Warren Property.
Estimates of Taxable Operating Results and Funds from
Operations of the Warren Property.
Notes to Estimates of Taxable Operating Results and Funds from
Operations of the Warren Property.
Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1998.
Pro Forma Condensed Consolidated Statements of Income for the
Year Ended December 31, 1997 and the Six Months Ended June 30,
1998.
Notes to Pro Forma Condensed Consolidated Financial
Statements.
[c] Exhibits
* 23.1 Consent of KPMG Peat Marwick LLP
- ----------
* Filed herewith
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders
of Lexington Corporate Properties Trust
We have audited the accompanying Historical Summary of Revenue and Certain
Operating Expenses of the Warren Property, as defined in the accompanying Note
1, for the years ended December 31, 1997, 1996 and 1995. This historical summary
is the responsibility of the management of the Lexington Corporate Properties
Trust. Our responsibility is to express an opinion on the historical summary
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
summary. We believe that our audits provide a reasonable basis for our opinion.
The accompanying Historical Summary of Revenue and Certain Operating Expenses of
the Warren Property has been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission as described in
Note 2, and is not intended to be a complete presentation of the revenue and
expenses of the Warren Property.
In our opinion, the historical summary referred to above presents fairly, in all
material respects, the revenue and certain operating expenses, as described in
Note 2, of the Warren Property for the years ended December 31, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.
New York, New York KPMG Peat Marwick LLP
August 31, 1998
<PAGE> 5
Lexington Corporate Properties Trust
Historical Summary of Revenue
And Certain Operating Expenses
of the Warren Property
For the Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rental revenues $ 5,632 $ 5,632 $ 5,632
Certain operating expenses:
Interest expense 3,107 3,415 3,740
----- ----- -----
Excess of revenues over certain
operating expenses $ 2,525 $ 2,217 $ 1,892
===== ===== =====
</TABLE>
The accompanying notes are an integral part of this historical summary.
<PAGE> 6
Lexington Corporate Properties Trust
Notes to Historical Summary
of Revenues And Certain Operating Expenses
of the Warren Property
1. Property
The Historical Summary of Revenue and Certain Operating Expenses relates to the
operations of a property the Company acquired (the "Warren Property"), while
under ownership previous to Lexington Corporate Properties Trust (the
"Company").
Effective August 27, 1998, the Company completed an agreement with the general
partners and a majority of the limited partners of the partnership which owned
the Warren Property to acquire the 1.7 million square foot distribution facility
in Warren, Ohio. Two of the general partners of the partnership are the Co-Chief
Executive Officers of the Company. As part of this transaction, they received
approximately $6 million in Operating Partnership Units in exchange for their
partnership interests, management contract and beneficial interest in a deferred
installment obligation. For each of the years in the three year period ended
December 31, 1997, the Property was net leased to K Distribution Properties Inc,
(which subleased the property to K-Mart Corporation) under a lease which expired
on September 30, 2012 and had 5 five year tenant renewal options. The sublease
has a basic term which expires on September 30, 2007 and has 10 five year
renewal options. This Historical Summary reflects revenues under the primary
lease.
The purchase price is approximately $63.9 million including the assumption of
$42.2 million in mortgage debt with an ascribed interest rate of 7%, the
issuance of $18.85 million in Operating Partnership Units and $2.85 million in
cash. The debt, which matures in September 2007, provides for semi-annual
principal and interest payments of $3,080,000. As part of the transaction the
Company purchased for $2.8 million the K Distribution Properties Inc.
primary lease and a purchase money note.
2. Basis of Presentation
The Historical Summary has been prepared on the accrual method of accounting. In
accordance with the regulations of the Securities and Exchange Commission,
certain debt interest, depreciation and general and administrative expenses have
been excluded from certain operating expenses, as such costs are dependent upon
a particular owner, purchase price or other financial agreement.
3. Revenue Recognition
Minimum revenues from rental property are recognized on a straight-line basis
over the terms of the related leases.
The future minimum revenue under the terms of the noncancellable tenant lease is
approximately as follows (in $000's):
<TABLE>
<S> <C>
1998 $ 8,395
1999 8,395
2000 8,395
2001 8,395
2002 8,617
Thereafter 64,933
---------
$ 107,130
=========
</TABLE>
<PAGE> 7
Lexington Corporate Properties Trust
Notes to Historical Summary
of Revenues And Certain Operating Expenses
of the Warren Property
The future minimum revenue under the terms of the noncancellable tenant sublease
is approximately as follows (in 000's):
<TABLE>
<S> <C>
1998 $ 8,409
1999 8,409
2000 8,409
2001 8,409
2002 8,646
Thereafter 44,457
--------
$ 86,739
========
</TABLE>
<PAGE> 8
Lexington Corporate Properties Trust
Estimates of Taxable Operating Results and
Funds From Operations
of
The Warren Property
(Unaudited and dollars in thousands)
The following statement represents estimates of taxable operating results and
funds from operations of the Warren Property based on the rent to be received by
the Company in the first year under the net lease with K-Mart Corporation. These
estimated results do not purport to represent results of operations for the
Warren Property in the future and were prepared on the basis described in the
accompanying notes which should be read in conjunction herewith. Since the
Company has qualified as a real estate investment trust it generally is not
subject to Federal income taxes on the portion of its taxable income it
distributes to its shareholders. In addition, management is not aware of any
material supportable facts that would cause these estimates to be misleading.
<TABLE>
<S> <C>
Estimated Taxable Operating Results:
Cash rent under net lease $ 8,409
Less: Interest expense 2,816
-------
Estimated taxable operating results $ 5,593
=======
Estimated Funds from Operations:
Estimated taxable operating results $ 5,593
Add: Incremental straight line rent 501
-------
Estimated funds from operations $ 6,094
=======
</TABLE>
<PAGE> 9
Lexington Corporate Properties Trust
Notes to Estimates of Taxable Operating Results
and Funds From Operations
Of
The Warren Property
(Unaudited)
1. Basis of Presentation
Cash rent under net lease represents the rental payments the Company is expected
to receive during the first year of the K-Mart Corporation lease.
Interest expense represents the tax deductible interest that will be incurred
under the mortgage debt assumed relating to the purchase of the Warren Property.
This interest expense approximates the interest expense recognized in accordance
with generally accepted accounting principles.
Incremental straight line rent represents the additional straight line rental
revenue expected to be recognized in accordance with generally accepted
accounting principles.
The accompanying statement does not include depreciation expense since the real
estate is fully depreciated for tax purposes as of December 31, 1997.
No income taxes have been provided because the Company is organized and operates
in such a manner so as to qualify as a Real Estate Investment Trust under the
provisions of the Internal Revenue Code ("Code"). Accordingly, the Company
generally will not pay Federal income tax provided that distributions to its
shareholders equal at least the amount of its real estate investment trust
taxable income as defined under the Code.
2. Acquisition Considerations
In assessing property acquisitions, the Company's management considers the (i)
credit worthiness of the tenant, (ii) remaining lease term, including scheduled
rent increases, (iii) local economic markets and (iv) physical condition and
configuration of the property.
<PAGE> 10
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Balance Sheet and Statements of Income
The accompanying Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1998 gives effect to the purchase of the Auburn Hills Property and the Warren
Property as if these properties had been acquired as of June 30, 1998. The
funding for the Florence Property was made on June 30, 1998 and accordingly has
been reflected as real estate and mortgages payable in the June 30, 1998
historical balance sheet.
The accompanying Pro Forma Condensed Consolidated Statements of Income for the
year ended December 31, 1997 and the six months ended June 30, 1998 assume that
the Property Acquisitions and all 1997 acquisitions had occurred as of January
1, 1997. The pro forma information is based on the historical financial
statements of the Company after giving effect to the acquisition of these
properties.
The Pro Forma Condensed Consolidated Balance Sheet and the Statements of Income
have been prepared by the management of the Company. These pro forma statements
may not be indicative of the results that would have actually occurred if the
Property Acquisitions had been in effect on the dates indicated. Also, they may
not be indicative of the results that may be achieved in the future. The Pro
Forma Condensed Consolidated Balance Sheet and Statements of Income should be
read in conjunction with the Company's audited financial statements as of
December 31, 1997 and for the year then ended (which are contained in the
Company's Form 10-K for the year ended December 31, 1997), and the unaudited
condensed consolidated financial statements as of June 30, 1998 and for the six
months then ended (which are contained in the Company's Form 10-Q for the period
ended June 30, 1998) and the accompanying notes thereto.
<PAGE> 11
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1998
(Unaudited and in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS:
<S> <C> <C> <C>
Real estate, net $528,045 $ 77,700 $605,745
Property held for sale 2,937 2,937
Cash and cash equivalents 3,646 (2,850) 796
Restricted cash 4,735 4,735
Escrow deposits 276 276
Other assets, net 17,789 -- 17,789
-------- --------- --------
$557,428 $ 74,850 $632,278
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage notes payable, including accrued interest $286,323 $ 56,000 $342,323
Subordinated notes payable, including accrued interest 1,973 1,973
Origination fees payable 4,639 4,639
Accounts payable and other liabilities 3,160 -- 3,160
-------- --------- --------
296,095 56,000 352,095
Minority interests 51,976 18,850 70,826
-------- --------- --------
348,071 74,850 422,921
-------- --------- --------
Preferred shares, par value $0.0001 per share;
authorized 10,000,000 shares. Class A Senior
Cumulative Convertible Preferred, liquidation
preference $25,000; 2,000,000 shares issued
and outstanding 24,369 - 24,369
-------- --------- --------
Shareholders' equity 184,988 - 184,988
-------- --------- --------
$557,428 $ 74,850 $632,278
======== ========= ========
</TABLE>
<PAGE> 12
Lexington Corporate Properties Trust
Notes to Pro Forma Condensed Consolidated Balance Sheet
(Unaudited)
1. Pro Forma Adjustments
The adjustment to real estate, net reflects the purchase price of the
Auburn Hills Property and the Warren Property.
The adjustment to cash and cash equivalents reflects the use of cash in
partial settlement for the purchase of one of the Property Acquisitions.
The adjustment to mortgage notes payable reflects the additional
borrowings relating to the purchase of the Auburn Hills Property and the
Warren Property.
The adjustment to minority interests reflects the value of the additional
operating partnership units issued in connection with the purchase of one
Property.
<PAGE> 13
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 1997
(Unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental $42,493 $35,555 $78,048
Interest and other 1,076 -- 1,076
------- ------- -------
43,569 35,555 79,124
------- ------- -------
Expenses:
Interest expense 16,644 16,922 33,566
Depreciation and amortization of real estate 10,608 7,881 18,489
Other 5,610 -- 5,610
------- ------- -------
32,862 24,803 57,665
------- ------- -------
Income before gain on sale of properties, minority
interests and extraordinary item 10,707 10,752 21,459
Gain on sale of property 3,517 -- 3,517
------- ------- -------
Income before minority interests and extraordinary item 14,224 10,752 24,976
Minority interests 2,442 3,321 5,763
------- ------- -------
Income before extraordinary item 11,782 7,431 19,213
Extraordinary item - loss on extinguishment of debt 3,189 -- 3,189
------- ------- -------
Net income $ 8,593 $ 7,431 $16,024
======= ======= =======
Income per common share - basic:
Income before extraordinary item $ 0.61 $ 1.13
Net income $ 0.33 $ 0.88
Income per common share - diluted:
Income before extraordinary item $ 0.59 $ 0.99
Net income $ 0.32 $ 0.83
</TABLE>
<PAGE> 14
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Statement of Income
For the six months ended June 30, 1998
(Unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental $ 27,455 $ 9,463 $ 36,918
Interest and other 1,519 (183) 1,336
-------- ------- --------
28,974 9,280 38,254
-------- ------- --------
Expenses:
Interest expense 10,016 4,253 14,269
Depreciation and amortization of real estate 6,682 2,072 8,754
Other 3,018 -- 3,018
-------- ------- --------
19,716 6,325 26,041
-------- ------- --------
Income before minority interests 9,258 2,955 12,213
Minority interests 1,759 1,092 2,851
-------- ------- --------
Net income $ 7,499 $ 1,863 $ 9,362
======== ======== ========
Net income per common share:
Basic $ 0.38 $ 0.49
Diluted $ 0.37 $ 0.48
</TABLE>
<PAGE> 15
Lexington Corporate Properties Trust
Notes to Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
1. Pro Forma Adjustments
The adjustment to rental revenues relates to the establishment of a new
measurement date for straight lining tenant rents resulting from the
property acquisitions.
The adjustment to interest and other relates to the elimination of
interest earned on funds assumed to have been expended as of January 1,
1997 for property acquisitions.
The adjustment to interest expense relates to the additional borrowings
related to the acquisition of the properties.
The adjustment to depreciation was based upon an estimated useful life of
40 years for the building and 10 years for building improvements using the
straight-line method.
The adjustment to minority interest reflects operating partnership
unitholder's proportionate interest in pro forma adjustments.
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Lexington Corporate Properties Trust
Registrant
September 11, 1998 By: /s/ Patrick Carroll
--------------------------------
Patrick Carroll
Chief Financial Officer
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- --------------------------------
* 23.1 Consent of KPMG Peat Marwick LLP
- ----------
* Filed herewith
<PAGE> 1
Exhibit 23.1
The Board of Trustees
Lexington Corporate Properties Trust:
We consent to incorporation by reference in the registration statements (No.
333-57853 and No. 333-49351) on Form S-3 of Lexington Corporate Properties Trust
of our report dated August 31, 1998, relating to the historical summary of
revenues and certain operating expenses of the Warren Property by Lexington
Corporate Properties Trust for the years ended December 31, 1997, 1996 and 1995,
which report appears in this Form 8-K of Lexington Corporate Properties Trust.
KPMG Peat Marwick LLP
New York, New York
September 11, 1998
